Objective & Quantifiable Vs. Subjective & Qualitative
Incentive plan measures must be both objective and quantifiable but performance plan measures can be subjective and qualitative. Because so many elements differentiate a successful sales representative from an unsuccessful one, it is critical to create two sets of performance measures: one for the incentive plan and one for the performance management plan.
Performance management is sometimes viewed as a vehicle for delivering salary increases and, therefore, not applicable in a sales environment that doesn’t offer base salaries. When sales reps have no salary, a company cannot use the powerful motivational tool of raises and promotions to gain additional motivation from the reps.
One challenge of linking sales incentive pay to qualitative "performance" measures may be that a top-performing sales person as measured by your sales incentive plan would not score highly on a subjective performance review. Often, top salespeople are not inclined to be team players. Company leadership will need to determine how important the more subjective qualities are for the long-term health of the organization and focus the performance plan accordingly. If a poorly reviewed sales person continues to receive high incentive payouts and internal accolades, the performance review system is ineffective.
Solve this problem by linking the performance review process and the sales incentive plan through one of two common methods. The first is to rethink your base salary strategy for your salesforce.
If your reps are currently 100% variable, consider adding a small salary in lieu of a draw (the odds are high that your draw is actually acting like a salary anyway, especially if it is non-recoverable).
A second method for linking sales incentives with performance management is to make performance review scores a modifier to one or more elements of the sales incentive plan, with the effect of increasing or decreasing the amount of pay earned under one of the incentive plan measures. For example, the following table could serve as an annual performance review modifier for an illustrative $10,000 calculated year-end payout:
Performance Score
5
4
3
2
1
Modifier Applied
125%
110%
100%
90%
75%
Incentive Pay
$12,500 (extra $2,500)
$11,000 (extra $1,000)
$10,000 (no change)
$9,000 (loss of $1,000)
$7,500 (loss of $2,500)
Successful Habits
It is almost always necessary to make this linkage on a part of the incentive plan that is paid annually, as very few companies find it practical to conduct performance reviews more frequently.
Successful companies do not rely on their sales incentive plans alone to drive the required business results. Strong managers and a solid performance review system are the keys to balancing the immediate productivity imperative with the long-term importance of building a sales team that reliably produces results.
This was originally published from WorldatWork in 2009 when Beth was an owner of The Cygnal Group.